The direction of retail money has never mattered more than now, in a market where corporate repurchases are dwindling and Goldman Sachs anticipates household demand to step into the void left from a dearth of buybacks. While the frenzy among Robinhood traders has sparked some comparison between today and the dot-com bubble, the broader orientation of retail participation is much less exuberant.
Take fund flows. Investors have pulled $7 billion out of mutual and exchange-traded funds that focus on equities since the market’s bottom in March, according to data from Investment Company Institute. That brought the total withdrawals for 2020 to $84 billion.
Mike Wilson, chief U.S. equity strategist at Morgan Stanley, notes persistent skepticism among the firm’s rich clients, who are mostly older and may be more sensitive to the Covid-19 health risk. Another source of concern for this cohort, he says, is the uncertainty over the presidential election, but this too shall pass once the economy finds its footing, he said.
“We don’t think retail money has been driving the rally but see potential for this as the recovery path becomes clearer,” Wilson wrote in a note. “While it’s unlikely either of these issues will be completely resolved in the near term, we think they will and simply add to the wall of worry that may lead to positive inflows later this year.”
And the older generation has abundant money to put to use. Client cash at brokerage firms has stayed elevated despite a second-quarter rally that’s the best since 1998. At Schwab, cash accounted for 14% of client assets in May, a level that before March would have surpassed any time since at least 2014.
“Boomers and Gen X investors have plenty of dry powder to buy stocks in the next three to six months,” said Ben Onatibia, a strategist at Vanda. “Keep tracking millennials but don’t forget boomers.”
This article was provided by Bloomberg News.